Impact of Interest Rate on Investment in Nigeria
CHAPTER ONE
OBJECTIVE OF THE STUDY
The objectives of the study are;
- To determine the impact of interest rate on savings in Nigeria.
- To determine the impact of savings on Investment in Nigeria
- To determine how interest rate impact on the investment rate in Nigeria.
CHAPTER TWO
REVIEW OF RELATED LITERATURE
THEORIES OF INTEREST RATE
Several theories explained why interest is paid (Elliot, 1984). The theories of interest can be divided into two; the monetary theories and the non-monetary theories. The monetary theories are those theories of interest that stress the liquidity aspect of money, while the non-monetary theories of interest are those theories which give consideration to savings and productivity aspect of money. However, for the purpose of this study, we shall examine the three theories of interest rate; the classical or loanable funds theory, the liquidity performance theory (The Keynesian approach), the general equilibrium approach (Soyibo and Adekanye, 1992).
THE CLASSICAL THEORY OF INTEREST RATE
The classical theory postulated that interest rate is an equilibrium factor between the demand for and the supply of investible funds. The equality between savings and investment is brought about by the mechanism of interest rate. When saving exceeds investment, rate of interest will fall discouraging savings on one hand and encouraging investment on the other hand. This tendency continues operating till equality between savings and investment get established. Similarly, if investment exceeds savings, rate of interest rises to discourage investment and encourage savings till equality is established between savings and investment. Thus, classical system regards rate of interest as the equilibrium force between savings and investment. Classical economists approach to savings – investment equality is based on the assumption of full employment in the economy system (Mwega,Ngola, and Mwangi, 1990).
KEYNESIAN THEORY
In the Keynesian system of aggregate, the terms savings and investment refer to the aggregate saving and aggregate investment. Investment means production that is not currently consumed. It may take the form of machinery, equipment, building or increased investments of consumers’ goods. Savings is the amount of the current income, which is not spent upon consumption (Soyibo and Adekanye, 1992). The fundamental thing in this approach is that savings and investment are always and necessary equal.
CHAPTER THREE
RESEARCH METHODOLOGY
Research design
The researcher used descriptive research survey design in building up this project work the choice of this research design was considered appropriate because of its advantages of identifying attributes of a large population from a group of individuals. The design was suitable for the study as the study sought to Impact of interest rate on investment in Nigeria
Sources of data collection
Data were collected from two main sources namely:
Primary source and Secondary source
Primary source:
These are materials of statistical investigation which were collected by the research for a particular purpose. They can be obtained through a survey, observation questionnaire or as experiment; the researcher has adopted the questionnaire method for this study.
Secondary source:
These are data from textbook Journal handset etc. they arise as byproducts of the same other purposes. Example administration, various other unpublished works and write ups were also used.
CHAPTER FOUR
PRESENTATION ANALYSIS INTERPRETATION OF DATA
Introduction
Efforts will be made at this stage to present, analyze and interpret the data collected during the field survey. This presentation will be based on the responses from the completed questionnaires. The result of this exercise will be summarized in tabular forms for easy references and analysis. It will also show answers to questions relating to the research questions for this research study. The researcher employed simple percentage in the analysis.
CHAPTER FIVE
SUMMARY, CONCLUSION AND RECOMMENDATION
5.1 Introduction
It is important to ascertain that the objective of this study was on Impact of interest rate on investment in Nigeria. In the preceding chapter, the relevant data collected for this study were presented, critically analyzed and appropriate interpretation given. In this chapter, certain recommendations made which in the opinion of the researcher will be of benefits in addressing the challenges of interest rate on investment in Nigeria
Summary
This study was on Impact of interest rate on investment in Nigeria. Three objectives were raised which included: To determine the impact of interest rate on savings in Nigeria, to determine the impact of savings on Investment in Nigeria and to determine how interest rate impact on the investment rate in Nigeria. In line with these objectives, two research hypotheses were formulated and two null hypotheses were posited. The total population for the study is 200 staff of CBN, Abuja. The researcher used questionnaires as the instrument for the data collection. Descriptive Survey research design was adopted for this study. A total of 133 respondents made directors, HRMs, senior staffs and junior staffs were used for the study. The data collected were presented in tables and analyzed using simple percentages and frequencies
Conclusion
As have been established in this research that interest rate favours savers when the rate is high and not favourable when it is low. Savings is also looked upon as beneficial both for the individual and the society at large, thus, an increase in savings will ultimately lead to an increase in savings of the community. It was due to this effect that the classists believed in thriftiness. They were of the view that an individual saving was a great private as well as social virtue. The Keynes were at a different view, which they advocate that individual savings is a social virtue but rather supported the view that individual savings is greatly a social vice. Increase savings on the part of individuals will result in a general curtailment in the expenditure. When savings increase, investment also increases and investment is very essential for the economic development of an economy. With increase investment, employment is bound to increase which will in turn increase demand, prices, profit and more production expansion. This expansion if properly utilized will lead to economic development of a country. However in Nigeria, the banking habits are not developed. The average Nigerian still believes the best way to save is not by keeping our money in the bank but in communal meetings that exist in our communities and keeping ones money under the mattress where it is easily accessible. Under this particular sector, large blame goes to illiteracy and ignorance on the part of the public as it is deemed that depositing money in a bank requires many formalities and bureaucracy.
Recommendation
First and foremost an understanding of the savings-investment process can help inform policy decisions aimed at promoting economic development thus government should ensure that interest rate payable on savings is such as to stimulate savings rather than consumption as it has been proven from this research that interest rate have a positive impact on savings which in turn stimulate investments. Secondly, investment is required for the following purposes; for the business to buy new premises, machinery and to raise the fund to finance increased manufacturing capacity, for public sector to carry out public works such as building news or reconstruction of houses, roads, schools and hospital etc, for individual to buy or improve existing houses, or other fixed assets and for banks. Thus investment increases a country’s productive capacity and raises the standard of living. The processes of savings and investment play central roles in the circular flow of income and in determining the level of income, therefore government should ensure that the rate of interest on loans and advances are such as to stimulate investment thus leading to increase in the gross domestic product and the living standards of the citizens.
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